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Environmental and Economic Effects of CO 2 -related Vehicle Taxation in Germany. Adamos Adamou a,b , Sofronis Clerides a & Theodoros Zachariadis b a Dept. of Economics, University of Cyprus b Dept. of Environmental Management, Cyprus University of Technology
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Environmental and Economic Effects of CO2-related Vehicle Taxation in Germany Adamos Adamoua,b, Sofronis Cleridesa & Theodoros Zachariadisb a Dept. of Economics, University of Cyprus b Dept. of Environmental Management, Cyprus University of Technology 34th IAEE International Conference Stockholm, June 2011
Background • Transportation is globally the largest final energy consuming sector • Share in energy use and GHG emissions projected to increase in the future (mainly in non-OECD) • Deep transport CO2 reductions required in order to meet the global 2-degrees stabilization target • It may take time for biofuels and new technologies (hybrids, fuel cells etc.) to be effective fleet-wide • Basic policies discussed: • Fuel taxes • Fuel economy / CO2 emission standards
CO2-Related Vehicle Taxation • Promoted recently by many OECD countries • Registration tax and/or annual road tax calculated on the basis of a car’s CO2 emission level (instead of engine size / vehicle price / fuel type) • Objective: To encourage the purchase of low-CO2 cars without mandatory regulations, and avoiding political problems and negative repercussions associated with increasing fuel taxation • If tax rate per g/km CO2 is constant: equal marginal compliance cost – could be efficient solution • Little empirical analysis so far; such tax schemes risk running out of money (e.g. Netherlands, France, Ireland)
Our Modelling Approach – 1 • Discrete-choice consumer demand model for differentiated products (automobiles) • Structural estimation of demand by heterogenous consumers with Nested Multinomial Logit model (Berry S., Rand Journal of Economics 25, 242–262) • NML model relatively simple, allows for linear estimation techniques for multiple policy simulations without large computational burden (compared to random coefficients model of Berry, Levinsohn & Pakes, Econometrica 63, 841–889) • With this model we estimate consumer welfare, public revenues, firm markups and CO2 emissions in the automobile market of a country in a given year
Our Modelling Approach – 2 • Consumer utility of buying an automobile depends on its price, observed characteristics (e.g. engine size) and unobserved characteristics. • Products grouped in different categories within one or more nests; nest comprises several categories of cars grouped according to body type and engine size. Consumers are identical within each group but different from one group to another. • Supply side: Profit maximization of the firm • After estimating demand & supply we simulate changes in tax regime changes in retail prices and demand by automobile category changes in consumer welfare, firm markups, public revenues & CO2 emissions
Data • Automotive data obtained from ‘JATO Dynamics’ after a tender process • Coverage: 9 EU countries (AT, BE, DE, DK, GR, IT, NL, PT, ES), period: 19982008 • Dataset includes following variables:
CO2 Emissions Distribution of Cars Sold inGermany in Year 2008 Market segment ‘Lower medium-sized cars’ Market segment ‘Upper medium-sized cars’
‘Feebate’ Policy Simulations for Germany • Tax/rebate per vehicle sold according to formula: T = αx (CO2 – PP) • T in € , α in € per g/km • Scenarios for α = 15, 30, 45, 60 (corresponding to carbon taxes of 75300 € / t CO2) • Scenarios for pivot points PP = 120, 140, 160 g CO2 / km • Cars emitting above PP pay a fee; those emitting less than PPreceive a rebate • Feebate levied at consumer/producer level, passes through by 100% to retail car price
Comparison of policies according to feebate stringency for a given pivot point – 1
Comparison of policies according to feebate stringency for a given pivot point – 2
Results – 1: Impacts on emissions, public revenues & consumer welfare
Results – 2: Total economic impact(adding up changes in public revenues, firm mark-ups, consumer welfare and reduced environmental damage)
Conclusions & Outlook • It is possible to design a feebate program for new automobiles that curbs carbon emissions without reducing total welfare • But needs careful design in order to account for trade-offs between environmental effectiveness, public finances and consumer/producer surplus • Future work: • Estimate automobile demand & supply and run policy simulations for other countries (not only feebates) • Perform the same policy simulations across several EU countries • Perform dynamic policy simulations (more stringent taxation year by year)